ServisFirst Bancshares Q2 Earnings Call Highlights

Key Points

• Q2 earnings strengthened as ServisFirst reported net income of $85.8 million, or $1.57 per share, with first-half EPS rising to $3.09 from $2.28 a year earlier. Return on average assets improved to 1.91% and adjusted EPS was up 30% year over year.
• Loan growth accelerated sharply, with annualized growth above 15% and ending loans up $533 million from the prior quarter. Management said growth was broad-based across regions, and the loan pipeline reached a record level.
• Net interest margin and credit quality improved, with margin expanding to 3.63% and nonperforming assets falling during the quarter. Charge-offs remained modest, though management said margin expansion is likely to slow later this year.

ServisFirst Bancshares NYSE: SFBS reported stronger second-quarter earnings as loan demand accelerated, net interest margin expanded and credit metrics improved, executives said on the company’s earnings call.

Chief Financial Officer David Sparacio said the company earned net income of $85.8 million, or $1.57 per diluted share, for the second quarter of 2026. That compared with $1.52 per diluted share in the first quarter and $1.12 per diluted share in the prior-year quarter. On an adjusted basis, excluding items that affected last year’s results, diluted earnings per share increased 30% from $1.21 a year earlier, he said.

For the first six months of 2026, ServisFirst reported net income of $168.8 million, or $3.09 per diluted share, up from $124.6 million, or $2.28 per diluted share, in the same period last year. Return on average assets was 1.91%, compared with 1.89% in the first quarter and 1.40% a year earlier. Return on average common equity was 17.71%, compared with 17.91% in the first quarter.

Loan Growth Accelerates as Pipeline Reaches Record Level

Chief Executive Officer Tom Broughton said the company was “generally pleased” with the quarter, citing annualized loan growth of more than 15%. He said nearly all of ServisFirst’s 13 regions or segments produced “really solid loan growth,” with the strongest growth coming from the company’s two Florida regions and Tennessee.

Broughton emphasized that growth was broad-based, saying no region contributed more than 15% of total growth and almost none contributed less than 10%. He said the growth was “very granular” and not driven by several large credits.

Ending loans were $14.48 billion, up $533 million from the first quarter, or 15.3% annualized, Sparacio said. Average loans increased $440 million, or 12.8% annualized, on a linked-quarter basis. Year over year, loans increased $1.25 billion, or 9.4%.

Broughton said ServisFirst’s loan pipeline grew quarter over quarter and reached a record level. Projected payoffs for the current quarter were 17%, roughly in line with the prior quarter and down from about 33% over the past two years. He said payoffs appear to be returning closer to historical levels as loan demand rebuilds.

During the question-and-answer session, Broughton characterized the current loan demand environment as an “A,” noting that activity was broad-based and composed of many smaller loans. However, he declined to forecast whether mid-teens loan growth would continue for the rest of the year, citing uncertainty around payoffs, interest rates and geopolitical events.

Net Interest Margin Expands, Though Pace May Slow

Sparacio said net interest income was $155.6 million, up from $148.1 million in the first quarter and $131.7 million a year earlier. Net interest margin expanded to 3.63%, up 10 basis points from the first quarter and 53 basis points year over year.

The quarter included a $1.9 million recovery of interest income related to a large credit relationship that had been on nonaccrual status and was fully paid out. Sparacio said that recovery accounted for five basis points of the improvement in loan yields and total net interest margin.

On the funding side, average interest-bearing deposit costs were 2.80%, essentially flat with 2.79% in the first quarter and down 53 basis points from a year earlier. Loan yields were 6.23%, or 6.18% on a normalized basis, while investment yields were 3.81%.

In response to an analyst question, Sparacio said management is looking at the adjusted margin level, including a June spot rate of 3.59%, as the starting point for further expansion. He said ServisFirst still has more than $2 billion of opportunity from scheduled loan maturities, cash flows, covenant violations and loan modifications, but added that the pace of margin expansion is likely to slow as the gap between new loan yields and total portfolio yields narrows.

Sparacio said the company may see “one more quarter” of 7 to 9 basis points of margin expansion, but suggested a 4 to 6 basis point range may be more appropriate toward the end of the year.

Deposits Grow More Slowly, Non-Interest-Bearing Balances Rise

Broughton said deposit growth was constrained during the quarter by large income tax payments tied to client sales of properties and companies. Still, he said non-interest-bearing deposits grew 20% annualized in the quarter and 14% year over year, reflecting the company’s focus on treasury management services.

Ending deposits were $14.55 billion, up $62 million from the first quarter and $686 million, or 5%, from a year earlier, Sparacio said. Non-interest-bearing demand deposits totaled $3 billion, up 5.6% from the first quarter and 13.8% year over year.

Broughton said ServisFirst prefers to be in a position where it needs deposits to fund loan demand, rather than searching for loans to make. He added that the company typically sees stronger deposit growth in the second half of the year. Sparacio said the company’s pipeline includes both loans and deposits, with deposit opportunities emerging in Texas.

ServisFirst ended the quarter with $1.46 billion in cash and cash equivalents, equal to about 8% of total assets. Sparacio said the company had no Federal Home Loan Bank advances and no brokered deposits, with funding remaining “entirely core and relationship driven.”

Credit Quality Improves; CRE Concentration Ticks Higher

Chief Credit Officer Jim Harper said lending momentum improved during the quarter and continued into the early third quarter. He said growth was driven by commercial real estate activity, which pushed CRE outstandings relative to capital from 298% at the end of the first quarter to 307% at quarter end.

Harper said ServisFirst does not see “any systemic weakening in any particular sector of lending” and said credit quality remains strong. Nonperforming assets decreased by just under $7 million on a net basis during the quarter following the successful resolution of several credits early in the period.

Charge-offs remained modest, totaling approximately $3.7 million for the quarter and just over $12 million, or 9 basis points, for the first half of the year. Sparacio said net charge-offs were 11 basis points annualized in the quarter, down from 25 basis points in the first quarter and 20 basis points a year earlier. The allowance for credit losses stood at 1.26% of total loans, compared with 1.25% in the prior quarter.

Asked about the company’s CRE concentration ratio moving above 300%, Broughton said ServisFirst remains comfortable with its position and has “lots of headroom” before reaching a level management would want to avoid. He said real estate lending opportunities were broad-based across categories and not concentrated in one segment.

Expenses, Capital and Houston Expansion in Focus

Non-interest income was $12.9 million, up from $10.8 million in the first quarter and up 43.5% from a year earlier on an adjusted basis. Sparacio cited broad-based growth, including higher service charges, mortgage banking revenue, credit card income and bank-owned life insurance income.

Non-interest expense was $50 million, up 5.4% from the first quarter and 13% year over year. Sparacio said the linked-quarter increase was primarily due to a negative adjustment recorded in the FDIC special assessment in the first quarter. The efficiency ratio was 29.65%, the third consecutive quarter below 30%.

Salary and benefit expense rose 16.4% year over year, primarily reflecting the full run-rate impact of the Houston market expansion. Full-time equivalent headcount was 663 at quarter end, up 22 from a year earlier and up three from the first quarter. Broughton said the company added nine bankers during the quarter, including three in Houston and a new market president and regional CEO there.

Sparacio said the $50 million quarterly expense run rate is a reasonable current level and said the Houston buildout is currently a drag on the efficiency ratio as loans and deposits ramp more slowly than expenses. Broughton said Houston funded about $50 million in loans and $25 million to $30 million in deposits during the quarter.

Capital continued to build, with preliminary Common Equity Tier 1 capital to risk-weighted assets at 11.83%, total capital to risk-weighted assets at 13.09% and tangible common equity to tangible total assets at 10.72%. Book value per share was $36.19, up nearly 15% from a year earlier, while tangible book value per share was $35.94.

Broughton said the company is still not “hitting on all eight cylinders,” but is getting closer than it has been in the last two years. He said reaching a 2% return on assets may be difficult, but called it “a worthy goal,” while emphasizing that the primary goal remains growth in earnings per share.

About ServisFirst Bancshares (NYSE:SFBS)

ServisFirst Bancshares, Inc is a bank holding company headquartered in Birmingham, Alabama, and the parent of ServisFirst Bank. The company specializes in commercial banking services, catering primarily to small and mid-sized businesses, professionals and entrepreneurs. Its product portfolio encompasses commercial real estate lending, commercial and industrial loans, deposit accounts, treasury management and other ancillary banking products designed to meet the financial needs of its clients.

ServisFirst Bank offers a full suite of deposit products, including interest-bearing checking, money market accounts and certificates of deposit, as well as a variety of loan products.

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